Federal Ban on Non-Compete Agreements Coming

Federal Ban on Non-Compete Agreements Coming

On January 5, 2023, the Federal Trade Commission proposed a RULE that would essentially ban all employee non-competes, such as restrictive covenants that contractually prohibit an employee from competing against a former employer.  The FTC explained that “non-competes constitute an unfair method of competition and therefore violate Section 5 of the Federal Trade Commission Act.”  Here’s what the FTC proposed:

“it is an unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause.”

Non-compete clauses are defined as “a contractual term between an employer and a worker that prevents the worker from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.”  Think:  settlement agreement, employee handbook, employment agreement, repayment of training penalties on termination and even some protection of trade secrets agreements.  Here’s why – anything that may be considered a de facto non-compete clause regardless of the terminology used, may violate this proposed rule.

There is an exception for non-compete terms regarding sale of a business, as well as non-disclosure, non-solicitation, and other agreements that prohibit an employee from using confidential information against a former employer, if they are not written so broadly as to effectively preclude working in the same field after the conclusion of the worker’s employment with the employer.

Here’s the deal:  employers will be required to affirmatively rescind any non-compete clauses with present and former employees no later than 180 days after publication of the final rule and “provide [individualized] [paper or digital] notice to the worker [within 45 days of rescission] that the worker’s non-compete clause is no longer in effect and may not be enforced against the worker.”   We will let you know once this is enacted (and it likely will be).  And, expect a lot of litigation on this issue.

Did you know that we have affiliate offices in New York and Connecticut, and that between us and the affiliated offices, we have attorneys admitted to practice in New York, California, Colorado, Connecticut, District of Columbia (admission pending), Massachusetts, New Jersey, Hawaii, Oregon, Texas, European Union, England and Wales, France (Paris Bar) and Sweden?  We have you covered.  Epps & Coulson, LLP can help you keep up to date on changes to laws in all of the jurisdictions and keep business owners compliant to avoid being caught off guard.  Please contact dawn at dcoulson@eppscoulson.com with your questions.

Information contained in this memo is intended for informational and educational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.  It is likely considered advertising.  Epps & Coulson, LLP encourages you to call to discuss these matters as they apply to you or your business.